This paper provides a computable general equilibrium analysis of the medium to long-run impact of FDI inflows on poverty and income distribution in Bolivia. The CGE analysis addresses several important transmission channels which have been neglected in the empirical literature by (i) investigating the impact of FDI inflows on incomes of urban and rural households; (ii) taking into account informal activities; and (iii) differentiating between various segments of the urban workforce, whereas previous studies are typically confined to the dichotomy between white-collar and blue-collar workers in manufacturing industries. The simulation results suggest that FDI inflows add to Bolivia’s investment ratio, enhance economic growth, and reduce poverty. However, the income distribution typically becomes more unequal. In particular, FDI widens income disparities between urban and rural areas Our results point to two levers through which the Bolivian government may promote growthenhancing and poverty-alleviating effects of FDI. First, it seems important to overcome labor market segmentation. Second, complementary public investment in infrastructure may help remove bottlenecks in the absorptive capacity of the economy that tend to limit productive employment of the poor. Yet, simulated policy reforms or alternative productivity scenarios are hardly effective in reducing the divide between urban and rural areas.
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number
1281.
Find related papers by JEL classification: C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models D3 - Microeconomics - - Distribution F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements O5 - Economic Development, Technological Change, and Growth - - Economywide Country Studies
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Dani Rodrik, 2003.
"Growth Strategies,"
NBER Working Papers
10050, National Bureau of Economic Research, Inc.
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